What is Capital Gains
capital gains

What is Capital Gains

 What is Capital Gains in India?

Any profit or gain arising from the sale or transfer of a capital asset is chargeable to tax under the head “Capital Gains” It is deemed to be the income of the PY in which the transfer of capital asset took place.

Capital asset is defined as any kind of asset, movable or immovable, tangible or intangible. Paintings, Sculptures, Drawings or any work of art will attract Capital Gains.

Following assets are exempted from capital assets

  1. Any stock in trade, consumables, stores or raw material
  2. Agricultural land in India,
  3. 5% Gold bonds,
  4. Special Bearer Bonds, 1991.
  5. Gold deposit bonds under Government Scheme
  6. Distribution of capital asset by HUF to its members on partition
  7. Any transfer of assets under gift or will

Types of Capital assets

Short term capital assets

  1. Capital asset held by an assessee for not more than 36 months
  2. Equity Shares Units of Mutual Fund., Zero coupon bonds held by an assessee for not more than 12 months
  3. Property held by an assessee for not more than 24 months

Long term capital asset means where holding period exceeds more than defined above.

How to calculate capital gain ?

Capital gain’s Tax liability depends upon the nature of capital gains.

  • Whether LTCG (Long Term Capital Gain) or
  • STCA (Short Term Capital Gain)

Lets focus on LTCG First:-

How to calculate  long term capital gain tax?

  • Calculate full of Sales value of Asset

Less:

  1. Cost of Purchase or Acquisition (After Indexing)
  2. Expenditure incurred in connection with   transfer; Indexed cost of acquisition;
  3. Cost of improvement (Indexing)

Less:

  • From balance deduct the exemption provided by Sec.54
  • Balancing amount is LTCG.

Rate of LTCG is 20 % and 10 % in case of Equity Shares (if profit exceed 1 lac) up to 31/1/2018. ULIPS are exempt from LTCG.

How to calculate short term capital gain STCG ?

  • Calculate full of Sales value of Asset

Less:

  1. Cost of Purchase or Acquisition
  2. Expenditure incurred in connection with   transfer;
  3. Cost of improvement

Less: Deduct the exemption provided by 54B, 54D & 54G.

  • From balance deduct the exemption provided by Sec.54 B, 54 D
  • Balancing amount is LTCG.

Rate of LTCG is 30 % and 15 % in case of Equity Shares

How to Calculate Indexed Cost of Acquisition

The Indexed cost is calculated as below :-

Cost of Index (Sales Year)/ Cost of Index (Purchase Year) * Cost of Asset

How to Calculate Indexed Cost of Improvement

The Indexed cost is calculated as below :-

Cost of Index (Sales Year)/ Cost of Index (Purchase Year) * Cost of  Imporvement

Table of  Cost of Inflation Index: –

Financial Year

Cost Inflation Index
2001—02100
2002—03105
2003—04109
2004—05113
2005—06117
2006—07122
2007—08129
2008—09137
2009—10148
2010—11167
2011—12184
2012—13200
2013—14220
2014—15240
2015—16254
2016—17264
2017—18272
2018—19

2019—20

280

289

The tax burden is higher in the case of short term capital gain and lower is in case of long term capital gain.

Exemptions in Capital gains

Under Sec.54 –

Long term capital gain from Equity shares   are exempt provided STT has been paid, with proper purchase bill, and shares belong to listed company. However short term capital gains on shares and securities are taxed at 15% flat.

Capital gains from transfer of residential house property is exempt if:

  1. The house property is a residential.
  2. The house property is a long term (Holding Period more than 24 months)

Assesse should purchase a new house in 2 years from date of capital gain (ie:- sale of asset) or constructed house in 3 years from date (sale of old property)

The new house property purchased should not be within a period of 3 years from the date of purchase /construction.

Scheme of Deposit

If the amount of capital gain is not utilized for purchase or construction of new house property then it should be deposited with bank under capital gain deposit scheme. Amount should be deposited before the due date of furnishing ITR.  If the deposited amount is not utilised in 3 years period, then amount not utilised become LTCG for the year when 3 years expires.

Assessees can avail exemption LTCG  from   house property in up to two house properties . However, the LTCG on the sale of house property should not exceed 2 crores.

Capital Gain Tax Bonds  u/s 54EC

Invest in Capital Bonds and remain invested for 5 years and your money would be locked for 5 years.  Exemption from capital gain is upto 50 lacs.

NHAI  (National High way Authority of India

REC    (Rural Electrification Corporation)

PFC   (Powrer Finance corporation)

Are few companies which issues Capital Bonds

How to save capital gain tax on   residential property ?

Capital gain tax can be saved on sale of residential house property. Long Term Capital Gains Tax can be saved by investing into another property with in 3 years or investing into Capital Bonds upto 50 lacs.

How to avoid capital gain tax?

There is no way to avoid capital gain tax, unless you show the sales consideration at low level than actual, and claim fictitious expenses

IPA offers taxation course in Delhi

Income Tax department of India